Picking Up the Slack

While large pharmaceutical companies may be shifting resources to later-stage research and development, Big Pharma is by no means abandoning its drug discovery efforts. Instead, giant drug companies are forging closer ties with academia and small biotech companies specializing in early research work.

"From industry commentary and a lot of publications, one would think that pharma has turned its back on so-called technology platforms and early-stage opportunities completely, and that's not true," says Mark Edwards, managing director of Recombinant Capital, a Walnut Creek, Calif.-based biotech consulting and deal-tracking firm.

"Pharma has and continues to be heavily invested in biotech as both a lead generator and as a technology platform creator, or IP consolidator," Edwards says. "It is true that pharma is liking what biotech has to offer at the clinical end far more than they [did] about five years ago," he adds.

Edwards notes that slightly more than half of the alliances signed by biotech firms in 2004 were for discovery and preclinical phase programs. While this number is down from around 70% in 2001, "the death of the early-stage alliance has been way overspoken," Edwards says.

Industry financing cycles are a key reason why pharmaceutical firms have been signing deals with biotechs for more mid- and late-stage drug candidates over the past couple of years, he adds. In 1999-2000, smaller biotech firms were able to raise enough cash to keep certain early drug candidates in-house. But as private and public financing dried up, and biotech firms found themselves needing funds to continue operations, they became much more willing to license out their programs, which had since progressed to mid- and late-stage development, Edwards says.

"The late-stage deals are perhaps the inevitable output of a lot of money raised followed by the bubble bursting. Companies had to get very realistic about what it would cost to both complete clinical [trials] that they started and launch products," he adds.

"I think over the last two years, Big Pharma has found that it is increasingly difficult to maintain all aspects of drug development," says Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development. "The new dynamic that is being created is of large pharma relying more and more on small biotech companies to do earlier-stage research and development, and I believe this is good for both sectors."

Although this shift may help productivity in the industry, it could mean fewer opportunities in drug discovery at large pharmaceutical companies, he adds.

"Across the board, these are just tough times in the industry. Though there's an acknowledgement for the need for more research expertise, companies are just not hiring in any significant way," Kaitin says. He adds that as outsourcing of preclinical and early-stage drug development has picked up, it has become less likely that pharmaceutical firms "will bring in the... technical expertise and professionals they would have in the past to manage the earlier stages of development."

-- Edward Winnick